Question

In a slow year, Deutsche Burgers will produce 2.800 million hamburgers at a total cost of $3.400 million. In a good year, it can produce 4.800 million hamburgers at a total cost of $4.600 million

. a. What is the average cost per burger when the firm produces 2 million hamburgers? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. What is the average cost per burger when the firm produces 3 million hamburgers? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

Suppose C(x) = F + 2.8*x

F = Fixed Cost

x = Variable Cost

C(x) = total cost

3.4 = F + 2.8*x -----(1)

4.6 = F + 4.8*x -----(2)

(2) - (1)

2*x = 1.2

x = 0.6

F = 3.4 - 2.8*0.6 = 1.72

Total Cost = 1.72 + 0.6*Quanitty

Average Cost = Total Cost/Quantity = 1.72/Quantity + 0.6

a)

Average Cost = 1.72/Quantity + 0.6

Quantity = 2

Average Cost = 1.72/2 + 0.6 = $1.46 per burger

b)

Average Cost = 1.72/Quantity + 0.6

Quantity = 3

Average Cost = 1.72/3 + 0.6 = $1.17 per burger